More and more Indians are building wealth through the property market. Over a quarter of these, own more than one investment property. The largest percentage of property investors are not high-income earners with the majority falling into the Rs. 3,00,001 – 72,23,000 income bracket. So,
what financial tips do you need to make smarter investment decisions?
Why do we invest in property?
Wealth Creation, Retirement Planning, Capital growth, Tax Benefits
Your goals might be long term, such as to fund an independent retirement, or short term, such as seeking capital growth during a housing boom. However, investors should always look at their investments over the long term with a 7-10 year view if your strategy is to buy and hold. Finance is equally as important as selecting the right property. In many cases, it may even be more important. Why? The amount of property you can buy is determined by the amount of finance you can borrow. So if you don’t get your finance right then you may restrict your borrowing ability to create a large property portfolio. The rich get richer because they have better access to finance. Here are 10 finance tips for property investing.
Reduce your credit card limits and cancel any credits card you don’t use:
Reducing your credit card limit can make a huge difference with how much you can borrow for your property. If you don’t use any credit cards you have you may like to consider cancelling them as lenders take credit cards into account when calculating how much you can borrow regardless of whether you use these or not.
Consolidate personal debt:
Always look for the opportunity to consolidate any personal loans which have a higher rate of interest as these don’t only cost you more in interest but also impact on your borrowing capacity. This includes any interest on store cards from a department store.
Use different lenders:
Loyalty and convenience is the main reason people continue to use the same lender to borrow money. Unfortunately this is reducing the amount that you are able to borrow and increasing your risk as one lender funding your whole portfolio results in them assessing all your properties as a whole rather than individually. By using different lenders you can always find the best deal, increase your borrowing ability and stay control of your assets.
Avoid Cross-Collateralising securities:
This refers to providing a lender with security over more than one property. This can cause enormous problems when the properties increase in value and you want to release some of the newly created equity. The lender has your assets tied up so if you want to go to another lender that is offering a better deal, the current lender may not partially discharge their mortgage to allow you to refinance the property. Furthermore, if you are having financial problems and you wish to sell part of the portfolio to solve it, the lender may call in their loans which may mean selling all the properties in a manner which may be detrimental to you.
Have a plan or strategy:
No one plans to fail… they just fail to plan! We’ve all heard that saying before. Like any successful business, an investor should prepare a detailed business plan detailing the strategy to grow their property portfolio, the finance that is required to achieve this and a cash flow analysis of how the debt and other costs are to be serviced.
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